Oil, Gas Drillers Face Higher State Taxes In Ohio

Tax hikes and tighter regulations are in store for gas and oil drillers in Ohio, if the governor has his way.

Yesterday, Republican John Kasich called for sweeping changes and stricter controls in handling the state's shale gas boom.

Tim Rudell, of member station WKSU, reports Kasich is normally anti-regulation but is making an exception.

TIM RUDELL, BYLINE: Governor John Kasich told oil and gas companies to show him the money.

GOVERNOR JOHN KASICH: I'd like to know who thinks that we should charge 20 cents on 107-dollar-a-barrel of oil, when if we have a modernizing of those rates we can reduce taxes for every Ohioan and particularly, small businesses.

RUDELL: When the governor proposes to modernize the rate, he means raising taxes - in some cases, sevenfold. If approved by the Republican-controlled legislature, the new taxes could put a billion dollars in state coffers in four years. The Ohio Oil and Gas Association decried the increase, saying it would, quote, negatively impact the economic future of Ohio and its residents.

[POST-BROADCAST CORRECTION: The CEO of MarkWest is Frank Semple.] William Stempel disagrees. He's CEO of Denver-based MarkWEST Energy, which intends to invest half a billion dollars building three, high-tech gas and oil-processing plants in eastern Ohio. Stempel was with Kasich the day before the governor announced his proposed tax increase and new safety regulations.

FRANK SEMPLE: If we were going to be able to invest and operate in the state of Ohio, the industry needed to bring benefits. Number 1-A is that we need to operate safely.

KASICH: What I get concerned about - some yahoo coming in Ohio and doing something that violates the rules and - causing problems.

RUDELL: Kasich's gamble is that energy companies want the gas and other hydrocarbons in Ohio's shale bad enough not to worry about paying more to get them. And Stempel shares the governor's stance.

SEMPLE: We've already got a lot of people in the state working on different projects, but it'll be a ramp up over the next 12 to 18 months, but there will be hundreds of jobs. This is happening, folks.

RUDELL: Ohio's existing effective tax rate is one-half of 1 percent, lowest among shale gas states that collect such a tax. And the Kasich proposal would range from 1 to 4 percent, depending on a complex formula.

By comparison, a similar tax in Texas is 7 and a half percent, and it's 5 percent in Michigan.

Along with revamping taxation, the governor's energy policy introduces additional regulations. There are new requirements, like tracking transponders on all vehicles moving drilling wastewater; and new prohibitions, like banning disposal well drilling into basement rock, the billion-year-old formations underlying Ohio's shale deposit. That's the type of drilling that Ohio's Department of Natural Resources just concluded caused a series of earthquakes in Youngstown in 2011.

ALAN WENGER: In Ohio, like many states that have had the shale boom, the regulators and the lawmakers are caught flatfooted a bit, because it is happening so quickly and therefore, the law might fall short.

RUDELL: That's Youngstown attorney Alan Wenger. He's a 30-year veteran of oil and gas law. Much of Kasich's proposed energy policy requires legislative action. But some environmental and safety regulations, like the moratorium already declared on drilling near the site of those Youngstown earthquakes, can be enacted by executive order.